GTA Under GST

GTA Under GST

Goods Transport Agency (GTA): The transportation services of goods by road under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (sr.no.18), are free from GST Services (Heading 9965):

(a) By road except for the services of:

• A goods transportation agency

• A courier agency

(b) By internal waterways.

Latest Update

• 54th GST Council Meeting – “To clarify that when ancillary/intermediate services are provided by GTA in the course of transportation of goods by road and GTA also issues consignment notes, the service will constitute a composite supply and all such ancillary/intermediate services like loading/unloading, packing/unpacking, transhipment, temporary warehousing etc. will be treated as part of the composite supply. If such services are not provided in the course of transportation of goods and invoiced separately, then these services will not be treated as a composite supply of transport of goods.”

• The GSTN has introduced the much-awaited feature to file Annexure-V online on the GST Portal. This option is specifically designed for newly registered Goods Transport Agencies (GTAs) opting for Forward Charge.  

• CBIC has notified the Goods Transport Authorities (GTAs) that they are exempt from yearly GST declarations under forward charge on the recommendation of the 50th GST Council meeting. 

• An advisory on the submission of the declaration in Annexure V by the Goods Transport Agency (GTA) opting to pay tax under the forward charge mechanism.  

• Tax payment advisory for (GTA) Goods Transport Agencies under the forward charge mechanism is now available at the government’s official portal. 

• GST rates for Good Transport Agencies (GTA) have been amended by the CBIC department w.e.f. 18th July 2022. 

Thus, it is to be considered as the transportation of goods by road, unless it is showcased as a service under a GTA (goods transportation agency), it will not attract GST.

Under GST laws, the Goods Transport Agency (GTA) is defined in clause (ze) of notification no.12/2017-Central Tax (Rate) dated 28.06.2017. (ze) ‘goods transport agency’ is explained as a person who bestows service about the transport of goods by road and produces consignment notes, by whatever name called.

Thus, the issuance of a consignment note is considered essential for a supplier of service to be recognized as a GTA. In case, the service provider did not issue such a consignment note, the transporter will not fall under the guidelines of the goods transport agency. Further, the absence of a consignment note for any goods hints the transporter has possession of the goods and is responsible until the goods are safely delivered to the consignee.

What is a Consignment Note?

There is no mention of consignment note neither in the Act nor in the notification no. 12/2017-Central Tax (Rate). For information, one can go through the meaning of the consignment note ascribed to the term under the Explanation to Rule 4B of Service Tax Rules, 1994. it defines a consignment note as a document provided by a goods transport agency against the receipt of goods for the transport of goods by roadways in a goods carriage.

The document contains details like serial number, name of the consigner and consignee, registration number of the carriage of the goods in which the goods are transported, details of goods being transported, details of the place of origin and destination, and the person who will be liable for the service tax payable from the consignor, consignee or the goods transport agency.

GST Rates on Services Offered by GTA

Following notification no. 11/2017-Central Tax (Rate) dated 28.06.2017 as modified by notification no. 20/2017- Central tax (Rate) dated 22.08.2017, sr.no. 9 and sr. no. 11, (i) Services of goods transport agency (GTA) in accordance with the transportation of goods (comprising household goods utilized for personal use) (Heading 9965 &9967 respectively) employs GST @2.5% or 6% CGST.

Also, similar rates are exerted for SGST, which turns the effective GST tax rates to 5% or 12%. However, a condition implies for the rate of 5% which bounds the taxpayers that he cannot claim input tax credit levied on goods or services used in supplying the service.

Further notification explains that 

(a) credit of input tax levied on goods or services utilized exclusively in the procurement of such service has not been accepted; and 

(b) credit of input tax credit levied on goods or services consumed partly for procurement of such service and partly for other impacted supplies eligible for input tax credits, its reversal proves such supply of service as an exempt supply and attract the rules under provisions of subsection (2) of section 17 of the Central Goods and Service Tax Act, 2017.

If the goods transport agency chooses to pay central tax at 6% the applied cumulative GST will be 12% in this criteria and the paid central tax for all the services supplied by GTA will be 6%. furthermore, the GTA would be able to claim ITC, if this option is being provided.

Thereby, in case the GTA is not liable to take advantage of ITC for the supplies belonging to it and the accountability under GST is remitted under reverse charge basis, the receiver of GTA service releasing the tax liability is permitted to take Input Tax Credit (ITC) of the amount of tax paid under reverse charge, issued it is utilized in the course or development of business at his end.

However, on a forwarding charge basis, the receiver would further be able to take advantage of the ITC of the GST paid by GTA. Notification no. 11/2017-Central Tax (Rate), sr.no.11, (ii) also assigns that associated services in transport other than those reported in (i) (Heading 9967) would charge GST @9% CGST. The SGST would also attract identical rates, which would result in the effective rate applicable at 18%. Similar rates are also applicable for services falling under heading 9965 in terms of notification no. 11/2017-Central Tax (Rate), sr.no. 9 (v).

Who is Liable to Pay GST on GTA Services (5% Rate – No ITC – RCM-7 Recipients)

The responsibility of paying GST for the supply of services by a goods transport agency (GTA )is transferred to the recipients who have not levied central tax at the rate of 6%, regarding transportation of goods by road (in terms of notification no. 13/2017-Central Tax (Rate) dated 28.06.2017 (sr.no.1) as corrected by notification no. 22/2017-Central Tax (Rate) dated 22.08.2017, if the receivers (placed in the taxable territory) fall in the following category:

• Any factory listed under or regulated by the Factories Act, 1948(63 of 1948); or

• any society indexed under the Societies Registration Act, 1860 (21 of 1860) or under any other rule applicable for few times in any part of India; or

• any cooperative society settled by or under any rule; or

• if any person has registration under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or

• anybody corporate settled, by or under any law; or

• any companionship if registered or not under any law comprising an association of persons; or

• any random taxable person.

Thus, if any of the above-mentioned categories of persons avail the services of GTA in the taxable territory the GTA supplier can pay GST (and avail ITC) @ 12% (6% CGST = 6% SGST): if the GTA does not opt for paying tax (and avail ITC), the receivers will be eligible to pay GST. If the recipients do not fall in the above-mentioned categories, the responsibility of paying GST will be of the supplier of GTA services.

GTA Services Exempted from GST

Notification no.12/2017-Central Tax (Rate) dated 28.06.2017 (sr.no.21), exempts below-given services by a GTA (Heading 9965 or 9967) from payment of tax: Services provided by a GTA, via transport in a goods carriage:

(a) Agricultural Yield

(b)  Salt, Milk, Food Grains like Rice, Flour, and Pulses

(c) Organic Manure

(d) Registered newspapers or magazines with the Registrar of Newspapers.

(e) If any relief material is being transported for the victims of natural or man-made disasters, calamities, accidents or mishaps

(f) Defence or military equipment

Notification no.12/2017– Central Tax (Rate) dated 28.06.2017 (sr.no.22) which exempts GTA for the services given below:

• Services are provided on a hiring basis

• A mode of transportation of goods for a goods transport agency

i.e., in case of hiring of a means of transportation from the GTA, no GST will apply to such transactions.

Importance of ‘in Relation to’ Term in the Definition of GTA

The term ‘in relation to’ in the definition of the GTA extends the scope from the actual transportation of goods to any other service provided like packing/unpacking, loading/unloading, temporary warehousing, trans-shipment, etc. If these services are not offered independently and are provided as the successful provision of GTA Service, they will fall under GTA.

Conclusion: The overall discussion clarifies that not all the transport of goods by road is by GTA. The services are from GTA only when the GTA issues a consignment note mandatorily. The services provided by GTA will fall under the GST otherwise if a person provides the services of transportation are exempted from the GST.

Furthermore, if the persons from specified categories supply the service of GTA in the taxable territory, the receivers who get such services become liable to pay GST instead of the supplier of services, but the GTA remains liable for collecting and payment of tax @ 12% (6% CGST + 6% SGST).

In other situations, where GTA service is utilized by persons other than those mentioned, the GTA service supplier will be liable to pay the GST. Also, he won’t be able to take ITC benefits on input services utilized by him if tax is levied at 5% (2.5% CGST + 2.5% SGST). If the GTA service provider rents any means of transport to offer his output service, no GST will be charged on such inputs.

Notification no. 12/2017-Central Tax (Rate) dated 28.06.2017 (sr.no.21A)-clarifies GTA services as exempted to unregistered persons.

Crux

• There is no need for registration if the GTA is offering services at 5% without ITC benefit, which means endowing exclusively RCM supplies.

• There is a need for registration if surpasses the 20L limit (40L is for retailers of goods not for services)

• there is the provision of exemption if GTA transporting specific goods or if supplying services to an unregistered person.

• The Recipient from specified categories will only be availed with the RCM facility with condition GTA providing supply @5%.

Employer and employee under GST

Employer and employee under GST

When a person enters into a contractual agreement with other person (which may be body corporate/ firm/ Individual/ etc) to perform or work as per the directions issued by the other person, the person who is performing the activities gets remuneration in consideration & it can be considered that he is in employment of the other person & this relationship is called employer employee relationship.

From the above it can be concluded that to establish employer employee relationship there should be-

1. Employers (who provide the employment & pay salary to employees).

2. Employee (who works as per the directions/instructions of the employer).

3. Contractual agreement between the employer and employee

GST taxability in case of employer employee relationship-

In Schedule III (Sec 7 CGST Act,2017) activities shall not be treated as either supply of goods or supply or services. Activities mentioned in Schedule III are out of ambit of CGST Act,2017. Entry no. 1 of Schedule III is mentioned below-

♦ Services by an employee to the employer in the course of or in relation to his employment.

The aforesaid entry of schedule III clearly specifies that any services provided by an employee to his employer in the course of or in relation to his employment is out of the ambit of GST. 

Here it is very pertinent to note that services that are only provided in the course of or in relation to his employment is to be considered as out of the purview of GST, all other services provided by an employee to his employer which are not in the course of or in relation to his employment shall not be excluded from the GST & shall be considered in the ambit of GST.

For e.g. - Mr. A who is in employment of XYZ limited (in short employer) provides HR services to the employer as per agreement & in consideration gets monthly salary of Rs 1 Lacs. So, HR services provided by Mr. A to his employer is in the course of his employment & the same is in ambit of Schedule III of GST. Hence no GST shall be applicable on this transaction.

Now Mr. A who is an employee of XYZ limited is also supplying goods to XYZ limited, now that supply of goods by Mr. A is not in relation to his employment, hence not covered by Schedule III of CGST act, 2017. So, GST shall be levied here.

From the above it can be concluded that only those transactions which are performed in the course or relation of employment is only under purview of Schedule III of CGST act,2017.

In Schedule I (Sec 7 CGST Act,2017) activities are considered as supply even if made without consideration. Entry no. 2 of Schedule I is furnished below-

Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

From the above proviso reading it can be understood that any gift provided by the employer to his employee shall be taxable under GST if the value of gift is exceeding Rs 50,000 in a financial year, however where the value of gifts is up to Rs 50,000 GST shall not be levied & transaction will remain out of ambit of Schedule I.

Now if we read schedule III in tandem with schedule I it can be clearly understood that when there is an employee employer relationship GST shall not be levied & if any gift is provided by employer to his employee & the value of gift exceeds Rs 50,000 in a financial year GST shall be applicable on the gift value, otherwise GST shall not be levied.

Now we will cover few circulars which has provided clarifications on issues related to the employer employee relationship-

Circular No. 172/04/2022-GST dated 06 July 2022-

Issue- Perquisites provided by the employer to its employee in terms of contractual agreement entered into between the employer and the employee are liable for GST.

Clarification - Perquisites provided by the employer to its employee which are in terms of contractual agreement between the employer & the employee, will not be subject to GST by the virtue of Schedule III.

Circular No. 178/10/2022-GST dated 03 August 2022-

Issue - Forfeiture of salary in the event of the employee leaving employment before the minimum agreed period.

Clarification - Notice pay recovery is not done due to tolerating an act but as penalties for dissuading the non-serious employees from taking up employment and to discourage and deter such a situation. Therefore, such forfeiture is not considered taxable under GST as consideration is not for tolerating an act or situation.

In matter of Manappuram Finance Ltd. Vs Assistant Commissioner of Central Tax and Excise (High court of Kerala) it was affirmed that notice pay recovery should not be taxed under GST. Also, it was held that Circular No. 178/10/2022-GST is binding on the department. Circular is clarificatory in nature & it is to apply retrospectively.

Thus, from the above reading it can be concluded that GST shall not be levied on services which are performed by an employee for his employer which is in the course of or in relation to his employment. Also, GST shall be applicable on any service provided outside employment by employee to employer.

Supply Taxability Remarks

Gift by employer Exempted upto Rs.50000/- per year Schedule: I

Service provided by employee to employer in relation to the employment Neither supply of goods nor services Schedule III

Using of company asset by employee for personal purpose Supply of service taxable in the hands of employer if provided without consideration Schedule I

Sale / Transfer / disposal of business assets by employer to employee with or without consideration (laptop, car, mobile, furniture) Taxable supply in the hands of employer Schedule I

Sale / Transfer / disposal of business assets by employer to employee with or without consideration on which ITC availed (laptop, car, mobile, furniture) Taxable supply in the hands of employer Schedule I read with valuation rule 28 will apply.

Employee of parent company providing service to the subsidiary or associate company Taxable service in the hands of employer As the subsidiary or associate are different company with PAN it is liable for GST

Services provided by Director to a company provided the payment made to him treated as professional charges and not salary Taxable under RCM Sec 9(3) Schedule I Circular 140/10/2020 Dt.10-6-2020)

Reimbursement of bills or allowances (TA/Conveyance/Medical/ Telephone bill / Member ship fee. Not taxable if provided as terms of employment

Comfort, convenience or welfare of the employee Not taxable This has been held by the Hon’ble Bombay high court (Nagpur bench), in its order dated 11.10.2010, in the matter of Central Excise, Nagpur Vs. M/s Manikgarh Cement [2010 (20) S.T.R.456 (Bom)].

Guest house provided by employer to employee as well non – employee Not an activity of furtherance of business, hence not taxable as well no input tax credit. Not eligible for ITC [Order No.02-03/ODISHA-AAAR/ 2018-19 Dated 21.01.2019].

Free cab Not taxable

Free Food Not taxable

Notice pay recovery Not taxable

Medical insurance, health checkup, relocation benefits, Personal accident insurance, Not taxable

Detention of goods under GST

 Detention of goods under GST

Detention of goods in transit-What to expect when your goods are detained or seized while in transit

Navigating the GST law in India: What to expect when your goods are detained or seized while in transit

Imagine this: you're a busy business owner, your goods are on their way smoothly, and suddenly, they're halted by GST officials. It's a twist you didn't expect, right?

Welcome to the world of GST—a law that was promised to be Good and Simple! While it is good as it consolidated fragmented multiple markets across States into one market, it has not lived up to its promise of being simple.

This law that can catch you off guard, especially when your goods are stopped or seized while in transit.

Despite its intention to streamline India's indirect tax system, the GST law has introduced a new layer of complexity for businesses. The process of detaining and seizing goods in transit often reveals the practical challenges in balancing strict compliance with the law and the day-to-day realities of running a business. This tension between law enforcement and business operations becomes even more pronounced when minor clerical errors result in significant penalties, suggesting that the "simple" part of GST still has a long way to go.

For every business owner, understanding GST isn't just important—it's essential. If you're dealing with goods in transit, don't risk getting caught off guard by the complexities of the law.

Dive in now to arm yourself with the knowledge you need to navigate GST with confidence!

A. INSPECTION OF GOODS AND VEHICLES IN TRANSIT

Section 68 of the CGST Act, 2017 - It empowers the GST authorities to inspect the vehicles in transit and requires the person in charge of a vehicle carrying any consignment of goods of value exceeding INR 50,000 to produce the documents carried in connection with the said goods.

Rule 138B and 138C of the CGST Rules, 2017- They empower the GST authorities to intercept any vehicle to verify the e-way bill or other relevant documents.

B. DETENTION, SEIZURE, AND RELEASE OF GOODS AND VEHICLES IN TRANSIT

Section 129 of the CGST Act, 2017 -It deals with the detention, seizure, and release of goods and vehicles in transit. If goods are transported without proper documentation or in violation of the law, they can be detained or seized. Such goods shall be released only on payment of a penalty or furnishing of a security deposit.

Rule 138A of the CGST Rules, 2017 -It requires the person in charge of a vehicle carrying goods valued above INR 50,000[1] to carry the following documents

Invoice or bill of supply or delivery challan

E-way bill in physical or in electronic form or E-way bill mapped to radio frequency identification device

A copy of the bill of entry in case of movement of imported goods from a port or airport or land customs station

GST Circular number 41/15/2018 dated April 13, 2018

It clarified the procedures concerning the interception of vehicles for inspection of goods in movement and the detention, release, and confiscation of such goods and vehicles. It provides guidelines related to the documentation required, the role of officers, and applicable penalties for any failure to comply with the provisions laid down in the CGST Act during the transit of goods.

C. How to deal with detention or seizure while in Transit?

No penalty in case of clerical errors as clarified by CBIC Circular No. 64/38/2018-GST

CBIC has explicitly clarified that proceedings under section 129 of the CGST Act may not be initiated, inter alia, in the following situations:

1. Spelling mistakes in the name of the consignor or the consignee but the GSTIN, wherever applicable, is correct.

2. Error in the pin-code but the address of the consignor and the consignee mentioned is correct, subject to the condition that the error in the PIN code should not have the effect of increasing the validity period of the e-way bill.

3. Error in the address of the consignee to the extent that the locality and other details of the consignee are correct.

4. Error in one or two digits of the document number mentioned in the e-way bill.

5. Error in 4- or 6-digit level of HSN where the first 2 digits of HSN are correct and the rate of tax mentioned is correct.

6. Error in one or two digits/characters of the vehicle number.

In case of the above situations, a penalty to the tune of Rs. 500/- each under section 125 of the CGST Act and the respective State GST Act should be imposed (Rs.1000/- under the IGST Act) in FORMGST DRC-07 for every consignment

The most common issues dealt with by the taxpayers; and judgments of the High Courts while dealing with such issues are discussed below:

1. Is a penalty justified for mere technical errors in an e-way bill if no intention to evade tax is established?

No, penalties are not justified for mere technical errors in an e-way bill if no intention to evade tax is established.

2. What happens if a notice for penalty under Section 129 is issued after a period of 7 days from the date of detention?

The order of detention is not valid and liable to be set aside if the notice for penalty under Section 129is issued after the period of 7 days from detention

3. Does a minor discrepancy in vehicle details in an e-way bill attract proceedings for penalty

No, a minor discrepancy in vehicle details in an e-way bill would not attract proceedings for a penalty 

4. What if the respondent authorities fail to prove any mensrea (i.e. criminal intent) for tax evasion?

If the respondent authorities fail to prove any mensrea for tax evasion, order imposing penalty liable to be set aside

5. Is merely not extending the e-way bill validity sufficient for a penalty under Section 129(3)?

No, merely not extending the e-way bill validity is insufficient for a penalty under Section 129(3) without the intent to evade tax.

6. What penalty is imposed if a vehicle breakdown prevents the update of an e-way bill and there is no intent to evade tax?

The penalty order is to be set aside and a general penalty of INR 25,000 under Section 125 of the CGST Act, 2017, may be imposed on the assessee.

7. Are tax and penalty demand valid if neither the invoice nor the e-way bill were accompanying goods at the time of interception but were produced subsequently?

Yes, the order of demand of tax and penalty is valid and just in law if the documents are produced subsequently

8. Can search and seizure of a godown result in penalty proceedings under Section 129?

No, search and seizure of a godown cannot result in penalty proceedings under Section 129

9. Is a penalty justified under Section 129(3) for not filling up Part 'B' of an e-way bill if the error is technical and without intent to evade tax?

No, a penalty under Section 129(3) is not justified if the error is technical and without intent to evade tax

10. What is the initial burden of proof for clerical or typographical errors in e-way bills?

The initial burden of proof lies on the GST authorities to demonstrate an intention to evade tax; penalties should only be imposed for intentional tax evasion, not inadvertent errors.

11. Is there a penalty to be refunded if the e-way bill expires but there was no intention to evade tax?

Yes, the penalty deposited for the expiry of an e-way bill should be refunded if there was no intention to evade tax.

12. What happens if there is a vehicle number mismatch on the e-way bill due to a replacement truck after a breakdown?

The tax and penalty demand under Section 129 should be set aside if the discrepancy is deemed a minor error per Circular No. 64/38/18, warranting a penalty of INR 25,000 under Section 125 of the GST Act

13. Adoption of an alternate route for delivery of goods-

No penalty can be levied for choosing a circuitous route in preference to a linear one if the travel time and destination point remain intact

14. Can a penalty under Section 129(3) be imposed solely due to a mismatch in dispatch address, despite no other discrepancies between the E-way bill and invoice?

Penalty cannot be imposed solely due to mismatched dispatch address

15. Can be goods and vehicles of the purchaser be detained for default committed by the supplier (not related to current shipment) in the supply chain?

No, the goods/vehicles of the purchaser cannot be detained as long as there is no non-compliance with E-way bill rules.

16. Can goods be detained on the ground that the consignment of heavier goods or with a short distance was not offloaded first as against the lighter consignment or a longer distance?

It is not mandatory that the consignment of heavier goods or short distances must be offloaded first.

On a reading of the above, the single important the High Courts have held is that no penalty under Section 129 (3) (which is 200% of the GST involved) can be imposed for clerical errors or minor deviations, as long as there is no criminal intent to evade payment of GST

While taxpayers whose goods or vehicles are detained for clerical errors or minor deviations, can seek relief from the Court's law upon proving the absence of intention to evade, such an exercise is expensive and time-consuming. Therefore, the taxpayers should leave no stone unturned to ensure compliance with the E-way bill regulations discussed above.

Practical tips to avoid detention or seizure while in Transit

1. Ensure E waybill is generated for every movement of goods irrespective of the threshold

2. Use software for generating E waybill (which integrates into the accounting software) as against using a government portal

3. Prepare an SOP containing the list of documents to be carried by the person in charge of vehicle for various scenarios like sales, sales returns, purchase returns, import of goods, stock transfer, etc

4. Conduct periodic training for the supply chain teams to ensure 100% compliance with E waybill rules, non-compliance of which will have a disastrous effect on the business

5. Wherever the transporter customer or supplier is responsible for generating E waybills, incorporate appropriate clauses in the contract, to offload liability of penalty, interest, fine, etc on account of non-compliance with E waybill rules onto them.

Financial Services under GST

Financial Services under GST

Financial Services: 

Financial services are the economic services provided by the finance industry, encompassing a wide array of organizations that manage money. This includes but is not limited to credit unions, banks, credit card companies, insurance companies, accountancy firms, consumer finance companies, stock brokerages, investment funds, and government-sponsored enterprises. These services play a crucial role in helping individuals and businesses manage their financial resources effectively, fostering growth and success.

GST and Financial Services

The Goods and Services Tax (GST) introduced in India has significantly impacted the financial services sector. GST is an indirect tax that has replaced many previous indirect taxes in India. It is divided into several tax slabs, with each product or service falling under a specific slab. Financial services, under the GST regime, attract a standard rate of 18%, classified under the SAC (Services Accounting Code) 9971. This unified tax structure aims to bring about transparency and simplicity in tax administration, impacting the pricing, operations, and profitability of financial services.

Types of Financial Services Affected by GST

• Banking Services: These include traditional banking operations, loan and credit facilities, and other related financial solutions provided by banking institutions.

• Investment Services: This category covers services related to the management, advisory, and handling of investments and assets.

• Insurance Services: Insurance services encompass the provision of various insurance policies designed to protect individuals and businesses against potential risks and financial losses.

• Accounting Services: Accounting and bookkeeping services involve maintaining and auditing financial records, tax filings, and financial planning and analysis.

• Financial Planning Services: These services help individuals and organizations in planning their financial futures through investment strategies, tax planning, estate planning, and retirement planning.

• Real Estate Services: This includes services related to the buying, selling, leasing, or renting of real estate properties.

• Stock Brokerage Services: Stock brokerage services involve the buying and selling of stocks and other securities on behalf of clients.

• Commodity Brokerage Services: Similar to stock brokerage, this involves the trading of commodities, such as metals, energy, and agricultural products, on behalf of clients.

Impact of GST on Financial Services

The implementation of GST at a standard rate of 18% for financial services, with a unified SAC code of 9971, has streamlined the tax structure but also posed challenges and complexities, especially in terms of compliance and operational adjustments. Financial institutions now face the task of realigning their service charges, understanding the tax implications on inter-state services, and ensuring compliance across all states in which they operate.

Banking Services Under GST

Banking services, the backbone of the financial sector, have seen a significant transformation with the introduction of GST. Banks offer a plethora of services, ranging from account maintenance, loans, and credit facilities to asset management.

Under the GST regime, these services are taxed at a standard rate of 18%. This uniform tax rate applies across the spectrum of banking services, simplifying the previously complex tax structure that varied from one service to another. However, this also means an increase in the cost of banking services for consumers, as the GST rate is higher than the previous service tax rate of 15%.

One of the critical challenges for banks under GST is the requirement for pan-India registration. Given their widespread operations across states, banks need to ensure compliance in every state they operate in, significantly increasing their administrative burden. Additionally, transactions between branches, often considered a routine internal process, are now taxable under GST, adding another layer of complexity to their operations.

Taxable services

Services provided to Reserve Bank of India

Bank Guarantee Commission Charges

Processing Fees on Loans

Inspection Charges

Documentation Charges

Issuance of Letter of Credit

Ledger Folio Charges

Credit Card Services

Demand Draft Charges

Intermediary Services

Issuance of Bank Statement Charges

Interest on Gold Loan

Standing Instruction Charges

Loan takeover charges

Charges on Cheque Bouncing

Sale of Repossessed Assets

Exempt Services

Interest/ Discount on Loans / Deposits or Advances

Repos and Reverse Repos transactions

Invoice / Cheque or Other Similar Discounting

Income From Commercial Paper or Certificate of Deposit

Collateralised Borrowing and Lending Obligations (CBLO) Transactions

Interest on Financial Lease

Sale of Derivative

Future Contracts

Investment Services Under GST

Investment services, including investment management, advisory, and brokerage services, also fall under the 18% GST slab. This encompasses services provided by stock brokerages, investment funds, and financial advisors, among others. The SAC code for all these services is 9971, aligning them under a single tax bracket and simplifying the process of tax filing and compliance.

The implementation of GST has necessitated a re-evaluation of pricing strategies for investment service providers. Given that the tax burden on these services has increased, providers must decide whether to absorb this additional cost or pass it on to their clients. This decision is critical in maintaining competitiveness in the market, especially when attracting and retaining clients.

Challenges and Solutions

• Challenge: The increased administrative burden of complying with GST regulations across multiple states. Solution: Banks and investment service providers are increasingly adopting advanced IT and software solutions to automate and manage GST compliance efficiently. Leveraging technology for compliance management can significantly reduce the time and resources dedicated to these tasks.

• Challenge: The need to revise pricing strategies due to the higher GST rate. Solution: Service providers in the banking and investment sectors are exploring ways to enhance the value of their offerings, incorporating additional services or benefits that justify the increased costs to consumers.

Insurance and Accounting Services Under GST

Insurance Services Under GST

Insurance services, which play a crucial role in providing financial security, are taxed at 18% under GST. This rate applies to all types of insurance, including life, health, and property insurance. The uniform tax rate simplifies the tax structure for insurance companies, but, similar to banking and investment services, it has led to an increase in the cost of insurance for policyholders.

Insurance companies now face the challenge of explaining this increase to customers, many of whom are accustomed to the pre-GST rates. Moreover, the need for nationwide compliance and the management of inter-branch transactions add to the operational complexities of insurance companies under GST.

Accounting and Bookkeeping Services Under GST

Accounting and bookkeeping services, essential for businesses to maintain accurate financial records, also attract an 18% GST rate. This includes services such as tax filing, financial auditing, and consultancy, provided by accountancy firms and individual accountants. The application of GST on these services has necessitated adjustments in billing and service contracts, with firms now required to include GST in their fees.

The primary challenge for accounting service providers is ensuring that their clients are fully aware of the GST implications on the services they receive. Educating clients about GST compliance and its benefits, such as the availability of input tax credit (ITC), is crucial for maintaining transparent and trust-based relationships.

Challenges and Solutions

• Challenge: Increased cost of services due to the application of GST. Solution: Service providers, including insurance companies and accounting firms, are enhancing their service offerings to add more value. This may involve providing additional support, advisory services, or leveraging technology to offer more efficient and cost-effective solutions.

• Challenge: Nationwide compliance and management of inter-branch transactions under GST. Solution: Adopting centralized GST compliance management systems and utilizing cloud-based accounting and ERP software can help manage the complexities of nationwide compliance and inter-branch transactions effectively.

Conclusion

The introduction of GST has undeniably streamlined the tax structure for financial services in India, bringing uniformity and simplification to a sector characterized by its diversity and complexity. While the shift to a single tax rate has presented challenges, particularly in terms of increased service costs and compliance burdens, it also offers opportunities for service providers to innovate and enhance the value of their offerings. Through strategic adjustments, technological adoption, and a focus on client education, the financial services sector can navigate the GST landscape successfully, contributing to its growth and the broader economy.

Impact of GST on Advances received

Impact of GST on Advances received

While finalizing the books of accounts, the auditor should review the impact of GST liability on advances received and whether the said liability has been discharged as per the provisions of the GST Act.

Generally, advances can be classified as set out below: 

(a) Security Deposits: These are utilised by the supplier only on occurrence of a contingent event. In case such even does not occur, then the security deposit will be refundable to the customer on completion or according to the terms and conditions of contract agreement. Generally, such deposits are not taxed under GST. However, in case of happening of the contingent event and consequent adjustment of security deposits, the same shall be taxable under GST

(b) Retention Money: Retention money is the sum of money (generally a percentage of the contract value) held back by the customer as a safeguard for any defective or non-conforming work by the contractor. As per the GST law, the contractor is required to discharge his GST liability on the whole invoice value, which also includes retention money kept by the customer.

(c) Advances for materials to be supplied: These are not subject to GST liability at the time of receipt of the advance.

(d) Advances for services to be rendered in future: Any advance received for services to be rendered in future, is liable to GST on the date of receipt of the same. Thus, the receiver of the advance has to discharge the GST liability on the advances received by him.

Taxable Event and GST Applicability

Condition GST Applicability

Advance received for the supply of goods Not Applicable (Exempted as per Notification no. 66/2017)

Advance received for the supply of services Applicable

Supplier opted for composition scheme Not Applicable

Supplier not opted for composition scheme (for goods) Not Applicable (Exempted as per Notification no. 66/2017)

Supplier not opted for composition scheme (for services) Applicable

Advance received and supply is canceled Applicable (may require adjustments based on specific scenarios)

Advance is refunded Adjustment/Refund of GST may be applicable

Advance is forfeited GST may be retained as per specific terms

The taxable event in GST occurs at the time of supply. In the case of advance payments, since there is no actual supply at that moment, one might wonder why GST is applicable. The reason is that the GST law considers the advance payment as a consideration for supply. In simple terms, the government treats the advance payment as if the supply has already taken place for tax purposes. Here’s a detailed understanding of the GST applicability on advance payments for future supplies:

• Time of Supply Determination: The time when a taxpayer is required to discharge GST on a particular supply is governed by Sections 12 to 14 of the CGST Act 2017. The ‘time of supply’ is determined by the time when the supplier receives payment with respect to the supply. This also includes other factors like the issuance of an invoice or receipt of goods. Generally, the time of supply is the earliest of the issuance of an invoice or the receipt of payment.

• Advance Payments: In the case of advance received for any supply, the time of supply is fixed at the point when the advance is received. This applies irrespective of whether the actual supply is made or not. Consequently, GST needs to be paid with reference to the time at which the advance is received. This requires compliance with certain procedures, documentation, and reconciliation of taxes paid on the advances and the supply made.

• Deemed Supply: As per Section 12 of the CGST Act 2017, a “supply” is deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment. For example, if an advance of Rs. 10 lakhs are received for a future supply worth Rs. 1 crore, the time of supply for the advance received (Rs.10 lakhs) is at the time of receipt of the advance.

• Cancellation of Supply: If the supply is cancelled after paying advances, depending on the agreements, the advances received may be refunded, forfeited, or adjusted for later supplies. Each of these scenarios may require different tax treatments.

• Exemption for Suppliers of Goods: The Government, recognizing the compliance burden on small businessmen with regard to GST on advances, issued Notification no. 66/2017 dated 15.11.2017. This notification exempts all suppliers of goods who have not opted for the composition scheme from the burden of paying GST on advances received. For these categories of taxpayers, the time of supply arises only at the time of issue of invoice, and they need to discharge GST liability accordingly.

• Supplier of Services: However, suppliers of services are required to pay GST at the time of receipt of advances

Exceptions and Specific Rules for Advance Payments

While GST is generally applicable on advance payments, there are exceptions and specific rules for advance payments that one should be aware of:

• Zero GST Rate: If the advance payment transaction is subject to a 0 (zero) GST rate, the process of matching and offsetting the receipts against invoices may not be applicable. This means that if the goods or services are taxed at a zero rate, you won’t have to pay GST on the advance.

• Interstate and Intrastate Transactions: Depending on whether the transaction is interstate or intrastate, you will have to calculate different components of GST. For interstate transactions, you calculate the Integrated GST (IGST), while for intrastate transactions, you calculate the Central GST (CGST) and State GST (SGST).

Zero Rated Supply under GST

Zero Rated Supply under GST

Under the GST framework, the concept of zero-rated supply is of significant importance, especially for businesses engaged in exports and supplying to Special Economic Zones (SEZs).

Zero-rated supply refers to the supply of goods or services that are either exported or supplied to SEZs and are not subject to GST in India. The main objective behind zero-rating supplies is to promote exports and SEZs, which play a vital role in the Indian economy.

Exports of goods and services have always been a critical driver of economic growth and development, and the zero-rated supply provisions under GST provide a significant boost to Indian exporters by enabling them to compete in the global market. Furthermore, zero-rating supplies to SEZs help in creating a conducive environment for businesses and promoting investments in the SEZs.

Zero-rated supply in GST: Concept and legal framework

Zero-rated supply refers to the supply of goods or services that are exempted from GST under GST law in India. It is important to note that zero-rated supplies are distinct from exempt supplies, as exempt supplies do not attract any tax, while zero-rated supplies attract tax but are eligible for input tax credit (ITC) benefits. The main objective behind zero-rating supplies is to promote exports and SEZs, which play avital role in the Indian economy.

The provisions for zero-rated supplies are contained in Section 16 of the Integrated Goods and Services Tax (IGST) Act, 2017, which deals with the entitlement of ITC on exports or zero-rated supplies. 

Section 16(1) of the IGST Act provides that a registered person making zero-rated supplies shall be eligible to claim a refund of the unutilized input tax credit (ITC) on goods or services or both that are used for such supplies. 

Section 16(2) of the IGST Act further provides that a registered person making zero-rated supplies may either export the goods or services under bond or Letter of Undertaking (LUT) or claim refund of the unutilized ITC.

Additionally, Section 2(6) of the IGST Act defines “zero-rated supply” as any taxable supply of goods or services or both:

1. Export of goods or services or both; or

2. Supply of goods or services or both to a Special Economic Zone (SEZ) developer or an SEZ unit.

Exports of goods or services are considered zero-rated supplies as they are intended for consumption outside India and are not subject to GST.

To qualify as zero-rated supplies, the exporter must comply with the necessary documentation and procedure for shipping the goods or services and adhere to the prescribed timelines for filing returns.

Supplies of goods or services to SEZ developers or units are also considered zero-rated supplies. The SEZ scheme was introduced to promote exports and generate employment opportunities in the country. The supply of goods or services to SEZs is exempt from GST, provided that the supplier obtains a Letter of Undertaking or furnishes a bond with the proper authorities. SEZs have their own set of regulations and are governed by the SEZ Act, 2005.

In conclusion, zero-rated supplies play a crucial role in promoting exports and SEZs in India. The legal framework for zero-rated supplies is provided under the IGST Act, and businesses engaged in such supplies can claim ITC refunds or opt for the Bondor LUT route. Exports of goods or services and supplies to SEZs are two examples of zero-rated supplies under GST in India.

Export of goods or services as zero-rated supplies:

Export of goods or services is a crucial driver of economic growth and development in India. Under the Goods and Services Tax (GST) regime, exports of goods or services are considered zero-rated supplies, which means they are exempt from GST. The main objective behind zero-rating supplies is to promote exports and help Indian businesses compete in the global market.

Export under GST refers to the supply of goods or services that are intended for consumption outside India. The term “export” is defined under Section 2(5) of the IGST Act, 2017, which states that “export of goods” means taking goods out of India to a place outside India. Similarly, “export of services” means the supply of any service when:

1. The supplier of service is located in India

2. The recipient of service is located outside India

3. The place of supply of service is outside India

4. The payment for such service is received in convertible foreign exchange

For exports to be considered zero-rated supplies under GST, businesses must comply with certain eligibility criteria. One of the key criteria is obtaining the necessary documentation, such as a shipping bill, invoice, and other documents required under the Customs Act, 1962. The exporter must also follow the proper procedure for shipping the goods or services and adhere to the prescribed timelines for filing returns.

To claim the benefits of zero-rated supplies, the exporter must file a refund application under the GST law. The refund application must be filed within two years from the relevant date, as specified under Section 54(1) of the CGST Act, 2017. The relevant date for the purpose of filing a refund claim is either the date of issue of invoice or the date of payment of tax, whichever is later.

The benefits of zero-rated supplies under GST for businesses engaged in exports are manifold. Firstly, exporters can claim a refund of the unutilized ITC on goods or services or both that are used for such supplies. This helps in reducing the cost of exports and enables exporters to compete in the global market. Secondly, the exemption from GST helps in making Indian exports more competitive in the international market, which, in turn, promotes economic growth and development.

However, compliance and documentation-related challenges are some of the key issues faced by businesses engaged in exports. Exporters must ensure that the necessary documentation is in place, and the procedures for shipping the goods or services are followed meticulously. Failure to comply with the prescribed timelines or provide the required documents can lead to delays in processing refund claims or even rejection of such claims. Additionally, the refund process itself can be time-consuming and cumbersome, which can impact the cash flow of businesses.

In conclusion, exports of goods or services are considered zero-rated supplies under GST, and complying with the necessary eligibility criteria is essential for businesses to claim ITC refunds. The benefits of zero-rated supplies for businesses engaged in exports are significant, and it helps in promoting exports and boosting the Indian economy. However, compliance-related challenges and documentation requirements can be a hindrance for businesses, and it is essential to ensure that the necessary procedures are followed to claim the benefits of zero-rated supplies.

Eligibility criteria for supplies to SEZs to be considered zero-rated supplies.

Under the GST law, supplies made to SEZs are treated as zero-rated supplies if the supplier satisfies certain conditions. To avail of the benefit of zero-rating, the supplier is required to furnish an LUT (Letter of Undertaking) or a bond to the concerned authorities. The LUT or bond acts as a guarantee that the supplier will comply with the conditions prescribed by the GST law. Additionally, the supplier must ensure that the goods or services supplied are received by the SEZ unit or developer and are used for authorized operations

3.

Advantages of zero-rated supplies to SEZs

The treatment of supplies made to SEZs as zero-rated supplies provides several benefits to both the supplier and the SEZ unit/developer. The major advantage is that such supplies are exempt from GST, which reduces the cost of goods or services for the SEZ unit/developer. This exemption allows SEZs to become more competitive and attract more investment, leading to increased economic activity and employment opportunities.

Another advantage of zero-rated supplies is that they allow for the smooth flow of credit. The supplier can claim input tax credit (ITC) on the inputs, input services, and capital goods used in the supply of goods or services to SEZs. The ITC can be utilized to offset the GST liability on other supplies or can be claimed as a refund.

In addition to the benefits, zero-rated supplies to SEZs also pose some challenges related to compliance and documentation. The supplier must comply with the conditions prescribed by the GST law to avail of the zero-rating benefit. These conditions include obtaining an LUT or bond, maintaining proper documentation, and following the prescribed timelines for filing returns. Any non-compliance with the conditions can lead to the denial of the zero-rating benefit and may result in penalties.

The zero-rating of supplies made to SEZs is a significant provision under the GST law that aims to promote exports, attract foreign investment, and create employment opportunities. The treatment of such supplies as zero-rated supplies provides several benefits to both the supplier and the SEZ unit/developer. However, compliance with the conditions prescribed by the GST law is essential to avail of the zero-rating benefit. As SEZs continue to play a crucial role in India’s economic growth, the significance of zero-rated supplies to SEZs is likely to increase.

GST on capital goods

GST on capital goods

According to section 2(19) of the CGST Act Capital Goods means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.

Input Tax Credit on Capital Goods

To avail input tax credit for the Capital Goods the following conditions, in addition to conditions as stated under section 16(2) of the CGST Act, are to be fulfilled.

1. The Capital Goods has been capitalised in books of account of the person and

2. The Capital Goods are used or intended to be used in the course or furtherance of business.

The conditions as stated under section 16(2) of the CGST Act are as under:

1. The registered person is in possession of Tax Invoice.

2. The registered person has received Capital Goods.

3. The tax charged on such capital goods has been paid and 

4 The GST Return has been filed in regard of such of Capital Goods by the Supplier.

The further condition as stated in section 16(3) is that where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961 (43 of1961), the input tax credit on the said tax component shall not be allowed.

Blocked Input Tax Credit – Input Tax Credit is blocked on Motor Vehicles, Vessels and Aircrafts subject to exceptions as per section 17(5) of the CGST Act.

Total amount of Input Tax Credit is allowed on purchase of capital goods. It is not like with provisions of VAT, Service Tax etc. where input Tax Credit was allowed in instalments year wise

Input Tax Credit not allowed on Capital Goods

The Input Tax Credit is not allowed on Capital Goods on following circumstances:

1. If the Capital Goods are not capitalised in the books of account.

2. If the Capital Goods are purchased for non-business purpose.

3. If the Capital Goods are purchased to be used exclusively for exempt supply.

Circumstances when availed Input Tax Credit against Capital Goods shall be paid.

The Registered Person shall have to pay input tax credit against availed input tax against purchase of Capital Goods in following cases:

1. When the Registered Person shifts from regular registration to Composition Scheme and

2. When the Registered Person gets his registration cancelled.

How much amount shall be paid we should consider section 18(4) of the CGST Act read with rule 44 in the case of shifting from Regular Registration to Composition Scheme and section 29(5) read with rule 44 in the case of cancellation of registration.

Useful Life of the Capital Goods is 5 years.